Final Review - Part I

Question 1

Due Professional Care

Answer 1

Critically review work done by others

Question 2

Impair Independence

Answer 2

• direct/indirect interest (materiality-not included)
• audit fees, unpaid for 1 year
• CPA has a management position with the client
• CPA makes hiring decision

Question 3

Sufficient Relevant Data

Answer 3

ALL decision must be based on sufficient relevant data

Question 4

Acts of Discreditable Rule

Answer 4

• retaining client records
• discrimination in employment
• failure to follow standards
• negligently making false or misleading JEs
• failure to timely file tax returns
• misleading, false, or deceptive claims

Question 5

Material Weakness

Answer 5

Should report absences of material weakness but not significant deficiences

Question 6

AICPA Conceptual Framework

Answer 6

• identify threats
• evaluate significance
• apply safeguards to eliminate or reduce

Question 7

AICPA Conceptual Framework - Adverse Interest Threat

Answer 7

member will not act with objectivity (interest is opposed to the interest of the client)

Question 8

AICPA Conceptual Framework - Advocacy Threat

Answer 8

• promote the interest of the client to the point that his or her objectivity or independence is compromised

Question 9

AICPA Conceptual Framework - Familiarity Threat

Answer 9

• a long or close relationship with the client or employing organization
• too accepting / too sympathetic

Question 10

AICPA Conceptual Framework - Management Participation Threat

Answer 10

• take on the role of client management (member engaged in attest engagement)

Question 11

AICPA Conceptual Framework - Self-Interest Threat

Answer 11

a member could benefit financially

Question 12

AICPA Conceptual Framework - Self-Review Threat

Answer 12

not appropriately evaluate the results of previous judgment made / services performed or supervised

Question 13

AICPA Conceptual Framework - Undue Interest Threat

Answer 13

a member will subordinate his or her judgment to an individual associated with a client or employing organization or any relevant third party

Question 14

SOX –> PCAOB - lead audit partner rotation

Answer 14

every 5 years

Question 15

SOX –> PCAOB - conflict of interest

Answer 15

lead audit partner = cooling off 1 year

Question 16

SEC - lead partners

Answer 16

• rotation = 5 years
• time out = 5 years

Question 17

SEC - other partners

Answer 17

• rotation = 7 years
• time out = 2 years

Question 18

GAGAS Conceptual Framework - Undue Influence

Answer 18

external influences/pressures will impact an auditor’s ability to make independent & objective judgements

Question 19

Review audit work performed

Answer 19

review the work of others - considering whether the objectives of the engagement procedures have been achieved

Question 20

Materiality

Answer 20

• adequacy of disclosures
• the discovery of weakness in the client’s IC structure
• whether to use positive or negative confirmation

Question 21

Impairment of Independence

Answer 21

• staff owning shares in their own firm
• blind trust

Question 22

Quality Control - Engagement Performance

Answer 22

• high-level performance
• engagements are properly supervised
• confidentiality/safety custody

Question 23

Quality Control

Answer 23

NOT TO IMPROVE AUDIT EFFICIENCY